Authoritarian regimes, from Russia to China, are increasingly using financial instruments to cut their EU-based opponents off from payment systems, leaving the individuals they target at the mercy of banks’ arbitrary decisions.

A recent study commissioned by the European Parliament’s Committee on Foreign Affairs (AFET) identified financial transnational repression as “a growing area of concern.” The study described how states abuse anti-money laundering and counter-terrorism financing (AML/CFT) rules to restrict access to financial services for individuals such as dissidents or human rights defenders.

According to the study, state actors spread false allegations of money laundering, links to terrorism or criminal activity, prompting banks to restrict access on compliance grounds. This creates a range of difficulties for dissidents abroad.

“Being unable to open and retain access to financial services makes it difficult to travel and engage in activism, or even normal life,” the study states.

The report singles out authoritarian states, including Russia, China, Belarus and Turkey. It notes, for example, that updates to a list of “terrorists” and “extremists” collated by Russia’s financial monitoring service, Rosfinmonitoring, are automatically integrated into private compliance databases that Western banks and financial institutions use to control for AML/CFT.

Once an account is frozen, the study warns, it can be extremely difficult to reverse, even with legal assistance.

No financial services, no rent

Ukrainian human rights activist Lyudmyla Kozlovska, president of the Open Dialogue Foundation and a resident of Belgium, says she experienced the problem first-hand after becoming a target of Moscow-linked pressure campaigns.

Kozlovska described how “all banks in Belgium” had terminated her services without explanation.

“No financial services, no rent, nothing, no normal life,” she said. “I was paralysed while living in Brussels.”

Kozlovska blames “overcompliance” by banks, driven by fears of sanctions or losing licences if they fail to follow Financial Action Task Force (FATF) guidelines.

In practice, she added, investigative functions usually conducted by governments are being outsourced to private institutions.

“The banks have to investigate you, which is usually the task of the police and courts, not private institutions,” she said, adding that there is “a presumption of guilt” until you can prove your innocence.

A threat to a free society

Economist Jorge Jraissati, who has researched the issue extensively, described the phenomenon as “a threat to a free society”. He said it is difficult to assess how many people are affected. The issue remains highly stigmatised, and many victims stay silent out of fear that relatives or support networks they depend on could also face repercussions.

Jraissati noted that not only dissidents or human rights defenders are affected. Former office-holders and heads of government have also been targeted. Politically exposed persons are often considered a compliance risk by banks, triggering overcompliance.

Authoritarian governments are increasingly exploiting the system, Jraissati said. Following the arrest of Venezuelan dictator Nicolás Maduro, the regime in Caracas allegedly used Interpol notifications to have diaspora influencers who celebrated the arrest cut off from their banks.

Jraissati also warned about the growing use of AI in banking compliance systems, making institutions more vulnerable to disinformation campaigns and fake news.

“The problem is that FATF guidelines are written as if all states in the world were liberal democracies,” he said, arguing that access to financial services and their neutrality should be treated as a fundamental right comparable to freedom of expression.

Tackling abusive freezes

She argues that Europe should ensure reliable access to bank accounts for affected individuals, establish better training within supervisory authorities to enable early detection and significantly strengthen cooperation among financial regulators, police, and judicial authorities to effectively stop this abuse.

On Tuesday, AFET adopted a report on transnational repression by 46 votes to 13, with 9 abstentions. The report aims to tackle abusive freezes and calls on EU financial regulators to implement safeguards. A final vote in the European Parliament plenary is scheduled for 16 June.

(cm, mk)